Understanding and implementing written employment contracts are essential to business operations. Well-written employment contracts help companies avoid labour disputes or lengthy disputes.
In China, the Labour Law and Labour Contract Law of the People’s Republic of China establishes strict provisions for employment contracts. Violating employers can face harsh penalties, so it is crucial to get employment contracts right from the beginning.
Compulsory Terms
The Labour Contract Law mandates written contracts for all employees, including labour-dispatched workers from dispatching agencies. Employment contracts shall include the following compulsory terms:
- Employer name, domicile and legal representative or main personnel in-charge;
- Employee name, residential address and number of resident ID or a valid identity document;
- Terms of employment contract;
- Scope of work and placement;
- Working hours, rest and leave;
- Labour compensation;
- Social insurance;
- Labour protection, working condition and protection against occupational hazards;
- Other issues required by the Law.
Apart from the above terms, the contract may include a probationary period, training, confidentiality agreement, supplementary insurance and welfare.
Labour Relationship
Employers should know that the labour relationship is established when the employee commences work, and a written contract is mandatory within one month of the employment start date. If there is no written contract within one year of employment, the employee is entitled to an open-ended contract. In this instance, the employer is liable and may be forced to pay double the salary. Employers receiving labour dispatched workers from work placement agencies are subject to the same obligations. Oral contracts may only be established for part-time work that does not exceed four hours per day or 24 hours per week.
Labour Contracts
There are three types of labour contracts:
1) fixed-term of employment;
2) open-ended term of employment;
3) project/task-based employment, which is subject to termination once the project/task is completed.
Fixed-term Contracts
Companies should renew a fixed-term contract with a newly written one. Otherwise, in this instance, the employer assumes automatic renewal and the authorities may deem that there was no written contract from the expiry date of the previous one. Here, it is essential to note that each city or province may impose additional provisions for employers. Also, an employee is entitled to an open-ended contract upon the third consecutive contract renewal or having worked ten-consecutive years.
Employer Changes
Employer changes do not affect the validation of the contract. In a merger or division of the original employer, the original contract is still effective, and the new employer assumes the rights and obligations of the original employer.
Similarly, changes to the employer’s name, legal representative, main person-in-charge or investor do not affect the validation. Any amendments to the labour contract shall be conducted with consultation and in writing.
Especially for foreign employers, it is best practice to craft bilingual employment contracts in Chinese and a foreign language, with the same legal effect. In this manner, foreign employers may avoid arbitration commissions and local courts disregarding employment contracts drafted in a foreign language.
Written employment contracts are fundamental. No employer should avoid concluding a written contract. As the labour administrative departments of local governments at the county level and above have the authority to review contracts and conduct on-the-spot workplace inspections, employers should ensure contracts are regularly reviewed and renewals are made before the expiry date.
Conclusion
Written employment contracts are fundamental, and no employer should avoid concluding a written contract. As the labour administrative departments at county-level local governments and above hold the authority to review contracts and conduct on-the-spot workplace inspection, it is imperative to regularly review and renew contracts ahead of the expiry date.
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